Is IT the canary for the next recession?

The tech industry was seeing high debt and high valuations.

With near-zero interest rates, this is fine for a while: it lets companies gain market share (at least until saturation).

But once interest rates go up, investors start expecting higher returns on their capital, so they divest from high P/E growth opportunities towards more cash flow (like government bonds or companies already grown and now exploiting their position).

And with less capital you have less of a budget to keep people on payroll.

I think it's separate. The world had a massive hit during COVID lockdowns. While IT generally had a minor boost as workplaces and forms moved fully online, e-commerce and so on. So we're feeling a correction as people play more in parks instead of Instagram, shop in stores instead of on a site, etc.

Market corrections usually align with catalysts (e.g. major war and crypto crash). Things can stay overpriced or underpriced for years until there's a catalyst.

Well, I think the US Federal Reserve raising the interest rate to 4.5% in an attempt to cause mass-unemployment and to reduce consumption was the canary. :) Since that was the intended outcome, recession shouldn't surprise anyone.

I would imagine that some (non-IT) companies would be investing heavily in IT - home working, automation, call centre/websites/webapps

Speculative spend for startups and service companies which is investor drive may be down for the various reasons mentioned e.g. interest rates. Would be interesting to see if this is primarily in the US as for instance Europe has way less startup / tech sector anyway.

I think it's important to break "IT" up: IT at a non-tech company vs Large, established Tech Companies vs Start Up Tech companies are 3 very different industries...

Personally, it seems like all the news is "lay offs" but all of my unsolicited emails are recruiters. Maybe Big Tech are on an efficiency drive but smaller places are on a hiring blitz?

1) Tech is very long duration asset, higher interest rates mean shorter runway for tech companies which implies cost-cutting.

2) Many economist predict that this downturn will hit high/middle salaried jobs harder then low salaried jobs. This is due to demographic, social changes and simple fact that cutting few well paid jobs bring much more savings for companies.

There won't be thousands of jobs left in say construction or farming...

Recession is mostly about market participants being fearfull. In "reality", things aren't that bleak.

No.